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I keep hearing that home prices are going up but that mortgage rates are going up, too. I want to refinance, but I know I don't have 20 percent in home equity. I made a down payment of 10 percent when I bought my house in 2006, but then it dropped in value so I think I only have about 5 percent in equity now. Is there any way I can refinance?

You are correct about both things right now: Home values are going up in many housing markets, and mortgage rates are expected to creep up in 2013 and 2014. But the only way you can really know whether refinancing is an option is to consult a lender who will look at your finances and your property to see if there's a mortgage refinancing program that will fit your circumstances. There are some steps you can take to improve your chances of refinancing.

First, talk to a Realtor and check online for recent sales in your neighborhood of homes that are similar to yours. That's easier if you live in a condo or town home community or a development with a lot of homes that are the same size as yours. This will give you an idea of your current home value. Your lender will require an appraisal as part of the loan process, but you can help make sure your home appraises at the highest possible price if you prepare a list of your home improvements for the appraiser and any other information about your property or your neighborhood that adds to its value.

Second, talk to a lender about several programs. If your credit is good enough and your debt-to-income ratio is low, you may be able to use conventional financing for your refinance even if your home equity is just 5 percent. Otherwise, you should look into FHA refinancing, which generally allows you to have as little as 2.75 percent in home equity. Another option could be a government-sponsored Home Affordable Refinance Program (HARP) loan that is available to borrowers even if they are underwater on their mortgage.

A lender can help you decide which of these options will work for you.






 
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